Motley Fool Radio Interview With Jeff Bezos CEO, President, and Chairman of Amazon.com

Founded as an Internet bookseller by Jeff Bezos in 1996, Amazon.com(Nasdaq: AMZN) now also sells videos, music, electronics, and software. The company is a holding in The Motley Fool's Rule Breaker Portfolio. David and Tom Gardner interviewed Bezos on The Motley Fool Radio Show on January 16, 1999.

David: Back in March of 1996 a little company sprang up and opened its Internet store front and did $875,000 worth of sales, mainly in books. As 1998 closes, Amazon.com will have somewhere on the order of, our estimates say, about $600 million dollars just two years after that opening. That's $600 million in sales of books, music CDs, some consumer electronics and some software, and a few videos, too. Jeff, welcome to the show.

Bezos: Thank you. It's great to be here.

David: I wanted to ask you the first question. Back in the early 1990s you were a hedge fund manager. You'd recently graduated Princeton with a distinguished academic career and we know that you, at a certain point, decided that you should leave Wall Street and go out as an entrepreneur because you had this idea that a bookstore -- a Barnes & Noble, for example, the largest one can hold 250,000 different titles -- you figured you could start a book store that would have 2.5 million titles. Did you ever think that within four or five years you would be on the cover of Time magazine?

Bezos: No. In fact, anybody who would've predicted what has happened today would have had to have been put in a padded room with a strait jacket immediately.

Tom: And none of us are sitting in a padded room, thankfully at this moment, as far as I know. Now, when we look at Amazon, certainly in its first year as a public company there was a lot of debate on our website about whether or not the big booksellers would come along and squash this young upstart business. But before that could ever happen you were redefining what Amazon meant. And I guess one of the questions on the minds of our listeners is whether Amazon is now competing more with booksellers or with superstore discount retailers? Is there a way that we can put this in an industry that we can understand?

Bezos: That's a great question and I hope that one of our objectives right here is to make that very difficult for people, because I think one of the metrics of our success long term will be to the degree to which we're able to defy easy analogy. So, if we can do that we don't want to be the anything of the Internet. We'd rather have others try to be the Amazon.com of something, and [we would rather] go about trying to invent the future of e-commerce. That's part of what we're trying to do, is to be something new that the world has never seen before. So hopefully we'll make that kind of analogy tough. I do think that a year from now Barnes & Noble and Borders won't even consider us direct competitors.

David: Now Jeff, I'm looking at the market cap right now, $25 billion. Obviously the market sees that the company is not yet profitable and yet is willing to accord it an amazing valuation. Now, from our point of view, when we first wrote down some analysis on Amazon.com a couple of years ago, we figured this company is going to have advertising revenues. That's going to be a stream because you're getting so much information on me as your customer when I come in and buy a book about kayaks you now know that I probably have some interest in kayaks -- and it goes from there. So, [many thought that] this company was going to have advertising revenues. Yet right now Amazon has no [advertising] banners anywhere on the site. Do you have some expectation for doing that in the next year or two?

Bezos: The way we think about advertising is that as long as we have lots of traffic doing advertising in an appropriate way is an option that's always open to us. But today, we're investing, you know every pixel is valuable, screen real estate is very scarce. And we're effectively using it. We do have a lot of advertising on our site in effect; it's just that we use it all for ourselves to promote our new product categories, to promote different products that we are trying to sell, and so on. As long as you have the eyeballs, advertising is always a future option. It's not something that gets foreclosed every time, so there's no need to rush on that.

Tom: I sat, Jeff, at a Christmas party of probably about ten people who were all middle-aged, just getting onto the Internet, figuring out these different services and I'd say 80% of them were investors, and they all did some Christmas shopping at Amazon but were all shocked by the valuation of the company. When you point to the fact that you are looking to be a business that... one cannot draw easy analogies about... relative to the rest of the business world, what metrics can an individual, an investor who's thinking about a company like this, look to in terms of valuing whether or not you are succeeding going forward?

Bezos: Well, our strategy has always been one of long term, so we have consistently said that we will sacrifice optimizing for short-term profitability, for example, to have a better position long-term. So the kinds of metrics that you might want to look at to see how we're doing against a long-term plan are things like customer counts, things like market share. Those kind of things are what later can translate into an important and lasting company.

David: That's a great answer. Let me ask you this then, the year 2010, so we're fast forwarding, can you give me a sense of what you expect your profit margin to be then?

Tom: We're tapping into Amazon from a space station and then we're going over to the Edgar spot and looking at your financials. Can you make a projection about what profit margins might look like for this business in 2010?

Bezos: We are pretty careful around here not to make any forward-looking financial projections. Rarely are we asked for [projections] that far in the future, although I think that's actually the right question to ask, but I should stick to that anyway. I cannot give that sort of information.

Tom: OK, now Jeff, we have to confess that one of the primary reasons that we were hoping that you would come on the program, [spend] some time on a Saturday -- although as an Internet company ourselves we know a lot of people are probably working very hard on a Saturday over there in Seattle...

Bezos: By the way, you guys are doing a great job.

Tom: Well, thank you. Thank you. We've got a long way to go. We've got a long way to go.

David: And Tom's been a big handicap for us, so a lot of us have worked to overcome him.

Tom: I've been killing us. I've been killing us on the marketing side.

Bezos: I've pulled up your new book and as of this hour it's the number two best selling book at Amazon.com, the Rule Breakers, Rule Makers book. Congratulations.

Tom and David: Thank you very much.

Tom: We actually have that screen up in front of us right now where the book is number two, and that is one of the reasons we were really hopeful that you would be able to come on the program. We were wondering because Tom Brokaw is number one and we think maybe America's already heard enough from Tom Brokaw, so if you can have your people do something about that...

Bezos: (Laughing) I'll see what we can do.

David: OK, let me shift gears. A lot of people don't realize that Amazon.com owns the Internet Movie Database, an acquisition made last year. The Internet Movie Database today is the most popular site for going and figuring out who was in the cast of a movie back in 1957 or who's going to be in the cast in a movie coming up in the year 2000. You can click on an actor's name and see their entire career, everything they've done. You can click all the way through. And when I was thinking about this business -- and by the way, we do own Amazon.com in our online portfolio so I speak as a shareholder, and an interested shareholder, Jeff -- I was thinking at a certain point Blockbuster Video is going to kind of disappear out there.

I don't think that store space is going to make a lot of sense when we can all download movies online. I'm wondering [about] a video-on-demand future where somebody can click a button on the Internet and watch a movie, and maybe pay a dollar to do it instead of three bucks. Obviously their monitor will be a little bit more impressive and maybe it will be more of a home theater surrounding them from ten feet away. But do you foresee the Internet Movie Database maybe at some point... having every movie that we have on it and anybody can click for a dollar, let's say, you guys get five cents, the studios get 95 cents?

Tom: Or is Dave just losing his mind?

David: Or am I losing my mind?

Bezos: Well, I can't comment on Dave's sanity, but what I can say is it's not just movies. One of the things I believe is that online market share for media products -- not just movies, but also books and music as well -- I think long, long term could be 10 to 15 percent of the whole market. I don't know where I get that number. I sort of pull it out of thin air. It's not something you can actually calculate. But I also believe that when you get to electronic downloadable products, whether it be movies, music or books, that that could invert.

So long, long term -- and that will take a long time before it happens, I believe, because there are a lot of constraints on making those products electronic -- then you'll see that almost all of those products are bought electronically. And if we can do a good job of being the world's most customer-centered company and be the best place to find and discover those kinds of products, then we should be somewhere in the revenue stream distributing those products.

Tom: You know, Jeff, one of the things we've been trying to do at the Fool is to really, for lack of a better word, to humanize the public market, put a face on corporations and let individuals know that right in front of them the greatest investment opportunities exist in the products and services that they use that are created, marketed, designed, and delivered by people. Sort of in that vein, I'm wondering if you could just describe for us what maybe an average Tuesday looks like on your schedule, how you spend some of your time, what an average working day looks like for you if there is such a thing?

Bezos: Well, let's see, I spend a lot of time on e-mail, and at Amazon.com we use e-mail as a very important method of communicating internally as a lot of companies do. I spend a significant fraction of time interviewing people, so it wouldn't be unusual for a Tuesday to have one or two interviews or phone calls to candidates. Sometimes we've already decided we want to hire them and we are just trying to convince them to join us. Those kinds of things, I try to keep Mondays and Thursdays completely free so that those are days I can be proactive. Tuesday would typically be kind of a fully overscheduled day with sort of back-to-back meetings and so on.

Tom: Now, just taking it all of the way back to the beginning, as well as humanizing things again for the average person who's thinking this is a big corporation, I don't know how this sort of thing gets created.

Bezos: They should see my office if they think that.

Tom: Can you talk a little bit about where the idea came from? We have a lot of small business builders that listen to the program, a lot of people coming to the website that are creating their own businesses either online or elsewhere. Can you just talk about the evolution, the origin of the idea?

Bezos: Yes. In early 1994, the wake-up call for me was finding Internet usage, actually Web usage, as measured in number of bytes flying across the Internet in Web format, was growing at 2300% a year and things just rarely grow that fast. So I set about trying to find a business plan that might make sense in the context of that growth, and I made a list of 20 different products looking for the first best product to sell online.

We picked books for the reason that you talked about at the beginning of this show. We have 4.7 million titles in our store now and a physical store just can't have that many, so you can build something online that literally couldn't exist in any other way. That was sort of the founding basis for the company. I was working on Wall Street and actually having a great time and so I had a tough decision to make and finally made the decision.

I'm kind of a nerd. I have a watch that updates itself 36 times a day from the atomic clock, my dog is named after a minor Star Trek character, so I was looking for the right framework in which to make this decision. I finally realized it should be a regret minimization framework, which is just a nerd's way of saying that when you are 80 years old you want to look back on your life and have as few regrets as possible. And I thought to myself, you know, am I ever going to regret having left Wall Street in the middle of 1994?

You get confused if you don't think about when you're 80 years old. You think about things like your 1994 bonus and are you going to care about that. You know, when you are 80 years old, you are not going to care about that at all. But I knew that I might genuinely regret not participating in this thing called the Internet that I thought was going to be a big deal.

Tom: You know, Jeff, listening to you putting it together that way, I've come to a conclusion that, in fact, David is insane. You made so much sense there and you should see Dave, he's already talking about his '99 bonus.

Bezos: If David's insane, I think a lot of us could use a little bit of that insanity.

Bezos: It's Kamala, from an episode of The Next Generation. Kamala was the metamorph in the episode titled "The Perfect Mate."

David: Outstanding! I am, in fact, also a Next Generation fan. Jeff, thank you very much for being on the show. We wish you the best of luck in 1999. It's exciting for us to talk to somebody who went out there and started his own business. So our closing question to you, speaking of business -- this comes from one of our employees, Dayana Yochim, right here at Fool HQ, who wants to know if Amazon ever intends to sell lingerie.

Bezos: (laughing) I don't know, but if we do you can count on us to do it in a customer-centric way.

David: OK, that's a very, very good answer. Well, we covered movies, we covered ad revenues, we covered where the company's going. We got to talk to the man who founded it all, thank you very much Jeff and best of luck!

Bezos: Thank you!

David: Of course, there's a man who doesn't really need any wishes of luck from us.